The new rules are coming for payday lenders, and opponents of those rules are readying themselves for what will likely be a fairly dizzying battle on the subject.
Payday and short-term lending is an approximately $6 billion-a-year industry, one that both critics and supporters of payday lending agree will take a major hit if the CFPB’s proposed rules on payday lending go through.
“We are likely, on our part, to take the appropriate actions that we can to see this rule never becomes effective, and that includes a possible lawsuit,” said Dennis Shaul, chief executive of the Community Financial Services Association of America (CFSA), a payday lending trade group.
The group complains that apart from adopting a set of regulations intended to kill a legal area of financial services, the CFPB willfully ignored borrower comments on the short-term loans (borrowers, statistically, are very satisfied with these products) and failed to process comment letters properly. Those objections could form the basis of litigation, if it ever even comes to that.
Republicans have made it quite clear they do not want to see this law go through, claiming that it goes too far and will harm consumers more than it will help them.
To make that block happen, Republicans in the House of Representatives added a “rider,” or amendment, to a spending bill banning the CFPB from regulating the payday loan industry.
If that doesn’t work (and it is widely expected not to), Republican legislators have already vowed to repeal the rule under the Congressional Review Act and bar the CFPB from ever drafting a similar regulation, according to aides and lobbyists.
But that strategy has risks — particularly going into an election year for the entirety of the House and a third of the Senate. Anti-CFPB zealots might be excited to publicly vote in favor of not regulating the payday lending industry, but moderates in both houses of Congress will have to deal with opposition ads that accuse them of loving debt traps, which no elected official wants.
The CFPB rules on payday lending have been in the works for some time and would require lenders to conduct background checks showing borrowers can afford the loans and to limit the number of loans made to a single borrower.
“The rule that we’re expecting will do a lot to combat the debt cycle,” said Karl Frisch, head of Allied Progress, a consumer advocacy group.